FOR IMMEDIATE RELEASE -- HAWTHORNE, N.Y. -- Nov. 9, 2004 -- SmartPros Ltd. (AMEX: PED, PED.U, PED.W), a leading developer of accredited continuing professional education, today reported financial results for the third quarter of 2004.
"We are pleased to show both profit and revenue growth in our first earnings announcement since becoming a publicly held company," said Allen S. Greene, CEO of SmartPros Ltd. "Our Company continues to execute both our business plan and business philosophies."
Summary Financial Discussion
Net revenues for the third quarter ended Sept. 30, 2004, were $2.87 million compared to $2.13 million in the comparable period last year, representing a 34.7% increase. Net revenues for the nine months ended Sept. 30, 2004, were $7.46 million as compared to $6.45 million in the same period last year, representing a 15.6% increase. The increase in net revenues is primarily attributable to our Working Values subsidiary, which, since commencing operations April 2003, has specialized in developing and implementing governance, ethics and compliance programs for corporations. Working Values has seen an increase in new clients and contract amounts in 2004. Working Values' performance in 2004, specifically the third quarter, can be attributed to several factors, including increased marketing efforts; the hiring of an additional enterprise sales person; and a continuing focus by corporations on governance, ethics and compliance training as a result of the expansion of existing and implementation of new regulatory requirements (like Sarbanes-Oxley) in the areas of ethics and compliance. We also saw increases in net revenues from sales of our accounting/finance and engineering products as well as from consulting services. These increases were offset by declines in net revenues from video production and duplication and e-commerce services.
Cost of revenues increased in both the three and nine month periods ended Sept. 30, 2004, compared to the corresponding 2003 periods, but decreased as a percentage of revenues. Cost of revenue for the three months ended Sept. 30, 2004, were $1.19 million as compared to $1.01 million in the comparable period last year. For the nine months ended Sept. 30, 2004, costs of revenues were $2.88 million compared to $2.84 million last year, an increase of 1.5%. These increases were primarily attributable to an increase in head-count and additional outsourcing expenses associated with executing and delivering Working Values' contracts. These increases were partially offset by lower royalty payments on our accounting/finance products, reductions in cost of materials, shipping costs and various other direct production costs.
As a result of the significant increase in net revenues and the relatively modest increase in cost of revenues, our gross margins increased significantly. For the three- and nine-month periods ended Sept. 30, 2004, our gross margins were 58.5% and 61.4%, respectively, compared to 52.5% and 56.1%, respectively, for the three- and nine-month periods ended Sept. 30, 2003.
Selling, general and administrative expenses for the three-month period ended Sept. 30, 2004, were $1.17 million compared to $1.12 million for the three-month period ended Sept. 30, 2003, an increase of 3.9%. For the nine months ended Sept. 30, 2004, selling, general and administrative expenses were $3.52 million, representing a 3% increase over selling, general and administrative expenses of $3.42 million for the nine months ended Sept. 30, 2003. This increase is primarily a result of increased payroll and related costs resulting from increased head-count, a general salary increase and earned employee and executive bonuses, which offset reductions in other operating expenses.
For the three months ended Sept. 30, 2004, we reported an operating profit of $341,000 compared to an operating loss of $175,000 in the comparable period last year. For the nine months ended Sept. 30, 2004, our operating profit was $544,000 compared to an operating loss of $302,000 in the prior year. This increase is attributable to the growth in revenues, while maintaining operating expense levels.
Net income as reported for the three months ended Sept. 30, 2004, was $327,000, or $0.13 per basic share, compared to a loss of $189,000, or $0.07 per basic share, in the third quarter of 2003. For the nine month period ended Sept. 30, 2004, our net profit was $501,000, or $0.19 per basic share, compared to a loss $358,000, or $0.14 per basic share. In addition, earnings before interest, taxes and depreciation (EBITDA) for the nine months ended Sept.30, 2004, was $1,061,000 compared to $199,000 for the nine months ended Sept. 30, 2003.
As of Sept. 30, 2004, we had cash of $874,000. In October 2004 we completed our initial public offering. We estimate the net proceeds from this offering, after payment of underwriting discounts, the underwriters' non-accountable expense allowance and other expenses of the offering, will be approximately $6.1 million.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy any of the securities described in the registration statement. Such offer to sell or solicitation of an offer to buy may be only made by prospectus in jurisdictions where the offer or sale has been qualified. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction
About SmartPros Ltd
Founded 1981, SmartPros Ltd. is an industry leader in the field of accredited professional education. Its products and services are primarily focused in the accredited professional areas of corporate accounting, financial management, public accounting, governmental and not-for-profit accounting, ethics and compliance, and engineering. SmartPros' customers include over half of Fortune 500 companies, as well as the major firms and associations in each of its professional markets. SmartPros provides education and content publishing and development services in a variety of media including Web, CD-ROM and video. Our subscription libraries feature hundreds of course titles and 1,000+ hours of accredited education. SmartPros' proprietary Professional Education Center (PEC) Learning Management System (LMS) offers enterprise distribution and administration of education content and information. In addition, SmartPros produces a popular news and information portal for accounting and finance professionals that services 300,000+ visitors and 100,000+ subscribers per month. Visit: www.smartpros.com
Forward-Looking Statements Disclaimer:
Statements in this press release that are not statements of historical or current fact constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause our actual operating results to be materially different from any historical results or from any future results expresses or implied by such forward-looking statements. In addition to statements that explicitly describe these risks and uncertainties, readers are urged to consider statements that contain terms such as "believes," "belief," "expects," "expect," "intends," "intend," "anticipate," "anticipates," "plans," "plan," to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our filings with Securities and Exchange Commission
